Press release

Fidelity research reveals decline in Hong Kong’s retirement readiness, taking savings levels further below predicted retirement needs

The latest retirement survey designed by Fidelity Worldwide Investment shows that the Retirement Readiness Index of Hong Kong people in 2012 has dropped as compared with that in 2010. People’s expectations and attitudes towards retirement are not realistic enough, the survey also found.

- Hong Kong people’s Retirement Readiness Index has dropped from 54.2% in 2010 to 50.2% in 2012.

- There is a strong expectation for later retirement, with 40% of respondents expecting to need to work until the age of 65 or beyond.

- Inflation and stock price fall are their major concerns for eroding their retirement income.

- Respondents tend to adopt a more conservative investment strategy for retirement investment.

- Though 70% of respondents are aware of the ECA, most of them (75%) are not familiar with the arrangement, which will come into effect on 1 November.

 

HONG KONG, 9 July 2012 – The latest retirement survey designed by Fidelity Worldwide Investment shows that the Retirement Readiness Index of Hong Kong people in 2012 has dropped as compared with that in 2010. People’s expectations and attitudes towards retirement are not realistic enough, the survey also found.

 

The survey interviewed 857 men and women in Hong Kong, aged 25-65, who are the financial decision-makers of their households, in April and May. It aims to understand their attitudes and approaches towards retirement and investment, and measure the usage penetration of pension schemes and the monthly contributions. It also aims to find out about Hong Kong people’s awareness and attitude towards the upcoming Employee’s Choice Arrangement (ECA).

 

Despite widespread recognition of the importance of early retirement planning and stable contribution levels, Hong Kong people still exhibit a mismatch between target and achievable retirement amounts. Hong Kong people remain disengaged from management of their own pension accounts, adopting a wait-and-see approach rather than actively seeking to maximize the benefits they could receive from their MPF contributions and other schemes.

 

Fidelity’s Retirement Readiness Index calculates the amount of income needed for a comfortable retirement and offers a measure of retirement readiness (pre-retirement income replacement) for the working population in Hong Kong. The Index utilises Fidelity survey results, current statistical data, and proprietary modelling developed by the Fidelity Research Institute to deliver its findings and conclusions.

 

Key Finding 1: Respondents tend to have realised that a higher retirement amount is required to sustain the retirement life; however, they are not confident enough to meet their retirement goals. Inflation and stock price fall are their major concerns for eroding their retirement income.

 

The report reveals a widening gap between the retirement amount needed and that to be achieved by Hong Kong people, from a shortfall of HK$1 million in 2010 to HK$1.4 million in 2012, translating to a decrease of Retirement Readiness Index from 54.2% to 50.2%. In order to meet the savings shortfall, a majority of people (75%) would prefer saving or investing more, followed by choosing to work after retirement (32%). About 28% would even choose to retire at a later age.

 

Overall, there is a strong expectation for later retirement, with 40% of respondents expecting to need to work until the age of 65 or beyond. The trend is also particularly evident amongst the mature group. 48% of respondents expect their retirement savings to be sufficient for retirement for less than 20 years.

 

“These findings indicate that Hong Kong people are aware that their retirement preparations are insufficient, particularly in light of the inflation. However, postponing one’s retirement years and working after retirement are not practical solutions,” said KP Luk, Head of Institutional Business, Hong Kong, of Fidelity Worldwide Investment. “With the continuing gap between expectations and the reality of retirement income needs, Hong Kong workers face an increasingly pressing need to manage their pension scheme more effectively.”

 

“In order to meet their retirement target, Hong Kong people need to start planning early and understand clearly their retirement goals. Knowing their target number will help to achieve their retirement income goals, but this can only be done with proper awareness of one’s potential yield from maximizing his pensions and savings portfolio,” said Luk. “Taking a more pro-active approach to your pensions plan in particular can transform an underused asset into the mainstay of your retirement provision.”

 

Key Finding 2: Respondents tend to adopt a more conservative investment strategy for retirement investment. Besides joining a pension scheme, a majority of respondents still maintain a strong culture of setting money aside for savings.

 

Most of those who have investment for retirement choose stable growth (25%) and capital stable (24%) in their existing retirement investment distribution.

 

Besides joining a pension scheme, 85% of respondents have personal savings. In 2012, the median of the respondents’ monthly personal retirement savings is HK$3,500. Out of those who have savings began saving under the age of 30, while those without savings plan to do so in their 40s, which is only 20 plus years from the average retirement age.

 

The respondents’ risk-adverse, conservative investment strategy may be a result of the recent investment market volatility. “Retirement planning is a long-term process,” said Luk. “Holding fear for short-term uncertainty may prevent one from benefiting the returns accumulated from long term investment.”

 

“Having personal savings reflects that respondents understand pension is only one of the pillars of retirement protection. However, one should start saving as early as possible, so as to extend the length of consumption of the savings during the retirement years,” Luk added.

 

Key finding 3: Most respondents are aware of the ECA and many are interested in switching to a new pension scheme provider upon the implementation of the arrangement. However, a lack of product knowledge and understanding of process/procedure remain the major barriers for most workers for doing so.

 

Though 70% of respondents are aware of the ECA, most of them (75%) are not familiar with the arrangement, which will come into effect on 1 November.

 

About one-third of all respondents are more likely to switch to a new scheme provider when the ECA is in effect. However, 46% of respondents express concerns about their lack of sufficient knowledge to compare amongst fund managers and their respective product range. About 40% of people do not even know where to start. 41% of respondents tend to rely on online platforms and family and friends for information to compare details of providers.

 

These findings suggest that Hong Kong people are not ready for the ECA yet. Their dependence on online channels and word of mouth reflects their need for professional advice for reliable information.

 

Luk recommends that when choosing one’s scheme provider, it is important to understand the background of the provider, namely its reputation, products and services, financial stability and risk management.

 

“One should choose his provider based on products and services rather than sales incentives. When evaluating a provider’s performance, one should focus on its long-term stable return rather than short-term high return,” he adds. “One should also bear in mind that there is no ‘one-size-fits-all’ strategy when investing in MPF. It is important to set a target retirement income and estimate one’s final pay and how much he needs overall.”

 

Fidelity’s Key Recommendations to Close the Gap

Government

- Increase minimum monthly amount for MPF contribution & raise level of tax relief

- Tax relief for Special Voluntary Contributions with ‘lock in’ options

- Mandatory personal financial planning as part of secondary education

 

MPF members

 

- Start planning early

- Know your retirement goal

- Determine your personal appetite for risk

- Select appropriate funds to suit your needs

- Review your portfolio regularly

- Seek for professional guidance. Speak to different scheme providers.

 

Scheme providers

- Offer solid and informed guidance

- Provide accessible and relevant targeted investor education

 

 

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About Fidelity Worldwide Investment

Fidelity Worldwide Investment is a global leader in asset management, providing investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific. Established in 1969, the company has over 5,000 staff in 24 countries and manages or administers client assets of US$288.1bn. It has over 7 million customer holdings and manages more than 740 equity, fixed income, property and asset allocation funds. The company’s fund managers receive research from one of the largest proprietary research teams, based in 12 countries around the world. Fidelity Worldwide Investment is an independent asset management company which is privately owned.

 

Data as at 31 March 2012

 

MEDIA CONTACT:

Rowena Kwok

Head of Corporate Communications, Hong Kong

Tel: +852 2629 2782

Email: rowena.kwok@fil.com